It is well-known that the ability of the Vickrey-Clarke-Groves (VCG) mechanism to implement efficient outcomes for private value choice problems does not extend to interdependent value problems. When an agent’s type affects other agents’ utilities, it may not be incentive compatible for him...

Taller workers receive a wage premium. Net of differences in family background, the disparity is similar in magnitude to the race and gender gaps. We exploit variation in an individual’s height over time to explore how height affects wages. Controlling for teen height essentially eliminates...

We present a model incorporating both social and economic components, and analyze their interaction. The notion of a social asset, an attribute that has value only because of the social institutions governing society, is introduced. In the basic model, agents match on the basis of income and...

People may be surprised by noticing certain regularities that hold in existing knowledge they have had for some time. That is, they may learn without getting new factual information. We argue that this can be partly explained by computational complexity. We show that, given a knowledge base,...

We study economies with multiple assets that are valued both for their return and liquidity. Exchange occurs in decentralized markets with frictions making a medium of exchange essential. Some assets are better suited for this role because they are more liquid - more likely to be accepted in...

In McLean and Postlewaite (2002), we analyzed pure exchange economies with asymmetrically informed agents. We defined a notion of informational size and showed that, when the aggregate information of all agents resolves nearly all the uncertainty regarding the state of nature, the conflict...

We study transactions that require investments before trading in a competitive market, when forward contracts fixing the transaction price are absent. We show that, despite the market being perfectly competitive and subject to arbitrarily little uncertainty, the inability to jointly determine...

Economic theory reduces the concept of rationality to internal consistency. The practice of economics, however, distinguishes between rational and irrational beliefs. There is therefore an interest in a theory of rational beliefs, and of the process by which beliefs are generated and justified....

We study transactions that require investments before trading in a competitive market, when forward contracts fixing the transaction price are absent. We show that, despite the market being perfectly competitive and subject to arbitrarily little uncertainty, the inability to jointly determine...

Sellers are often more able than consumers to test product quality. We show that whether such firms will voluntarily test quality and disclose what they learn depends in a paradoxical way upon the presence of mandatory disclosure rules: only if disclosure is mandatory will a seller not test and...